UK Treasury Frames New Rules to Bring Crypto Under FCA Oversight by 2027
The UK Treasury has finalized draft legislation, expected to be introduced to Parliament shortly, that will establish a comprehensive regulatory framework for cryptoassets, bringing the industry under the direct supervision of the Financial Conduct Authority (FCA). The new rules, which are expected to come into full force by October 2027, signal the UK’s commitment to fostering innovation while providing robust consumer protection, aligning digital asset regulation with the standards of traditional finance. This long-awaited move attempts to cement the UK's position as a hub for legitimate digital finance activity.
Extending Traditional Finance Rules to Crypto
Rather than creating an entirely new, bespoke regime like the European Union's Markets in Cryptoassets (MiCA) regulation, the UK's approach, enabled by the Financial Services and Markets Act 2023 (FSMA 2023), is to extend existing financial services legislation to cover cryptoassets. This principle of "same risk, same regulatory outcome" means that crypto exchanges, custodians, dealers, and intermediaries serving UK customers will be required to meet the same standards as traditional financial firms. Under the forthcoming legislation, a wide range of cryptoasset activities will be designated as regulated activities, requiring FCA authorization. These include operating a Cryptoasset Trading Platform (Exchange activities), safeguarding and administration of cryptoassets (Custody), dealing and arranging deals in qualifying cryptoassets, and issuing qualifying stablecoins. Firms engaging in these activities, including overseas firms serving UK retail consumers, will need to be authorized by the FCA and will no longer simply register under Anti-Money Laundering (AML) rules, which was the previous requirement, thereby subjecting them to a much higher level of scrutiny and accountability.
Key Focus Areas for the FCA
The FCA has already published several discussion and consultation papers detailing the rules it intends to set for the industry, which will form the regulatory handbook supplementing the primary legislation. The regulator's focus is particularly sharp on several key areas. Firstly, Consumer Protection will be paramount, extending the FCA’s Consumer Duty to crypto firms, ensuring high standards of transparency, and exploring restrictions on the use of credit (such as credit cards) to purchase cryptoassets. Secondly, regarding Market Integrity, the FCA is developing rules for market abuse in the crypto space, including proposals for admitting cryptoassets to trading on a UK-authorised platform, and implementing conduct of business standards. Thirdly, a robust regime for qualifying stablecoins used as a means of payment is being created, with rules that mandate full backing by high-quality, liquid assets held in custody, with clear redemption rights for holders. The Bank of England (BoE) will regulate systemic stablecoin operators to manage financial stability risk. Finally, Prudential Standards will be imposed, requiring capital and liquidity requirements on stablecoin issuers and custodians, similar to those applied to investment firms in traditional finance, to ensure financial resilience. Chancellor Rachel Reeves emphasized that bringing crypto into the regulatory perimeter is "a crucial step in securing the UK's position as a world-leading financial centre in the digital age," providing certainty for legitimate firms while cracking down on "dodgy actors." The staged implementation, with the final rules expected by 2027, gives the industry a clear roadmap for achieving compliance with the UK’s ambitious standards.